The big question for SolarCity when it didn’t secure a federal loan guarantee for an ambitious solar roof project a few months back was this: could it carry on with the plan? Looks like the answer is yes and SolarCity is announcing on Wednesday that it will still get a loan from Bank of America Merrill Lynch to help finance what is now a slightly smaller project.

Bank of America will provide a $350 million loan for the SolarStrong project, which aims to install 300 MW of solar panels at military housing in different states over five years, says Lyndon Rive, CEO of SolarCity. SolarCity is looking for equity investors to finance the rest of the $1 billion project, he added.

Bank of America was on board as a lender while SolarCity sought a partial federal loan guarantee for a $344 million loan for SolarStrong. The fact that the bank is sticking with the project reflects its growing interest in financing renewable energy generation and in particularly distributed generation, said Jonathan Plowe, head of new energy and infrastructure solutions at Bank of America. Distributed generation refers to projects installed close to or at the locations where the energy is used, and it’s a different model than the one for conventional power generation, which comes from large power plants that serve a big area.

Plowe said distributed generation projects like SolarStrong would’ve found it difficult to line up lenders a year ago. Lenders would’ve been quite concerned about the project’s massive scale and the necessity to deal with many utilities and permitting processes in various states, Plowe said. Plus, there were no standard criteria and processes for putting together a financial deal like this, and that meant the bank would have to invest in time and resources to create them.

Bank of America spent a good part of this year putting together what was initially a $344 million loan to qualify for a loan guarantee from the U.S. Department of Energy. The original project called for installing 371 MW. The result of that collaboration paved the way for reaching a deal to finance SolarStrong without the loan guarantee.

Bank of America, incidentally, also is the lender of another massive distributed generation project: a 752 MW plan to install solar on commercial building rooftops in as many as 28 states. The DOE agreed to cover up to 80 percent of the $1.4 billion loan from the bank for the project, which counts NRG Energy as one of the investors.

Financing model for distributed clean power

Plowe said the two deals represent “a huge step forward for the distributed generation project. We’ve created a financing model that makes distributed solar generation affordable on a huge scale without a guarantee from the government.”

Distributed solar generation is getting a lot more investor interest in the past year. As we noted in this post, many banks, private equity groups and power companies such as NRG have jumped into the market. Google announced its first investment in residential solar in June – the giant set up a $280 million pot for SolarCity to install solar panels.

The DOE gave a preliminary approval to a partial guarantee of the $344 million loan for SolarStrong and touted it as the largest residential solar project in the country. But the department ultimately decided against it and said there wasn’t enough time to complete the application process before the loan guarantee program ended on Sept. 30. But SolarCity contended that the decision reflected the fallout from the $535 million loan guarantee it gave to the now bankrupt Solyndra. That loan guarantee sparked a Congressional investigation and raised questions about the government’s role in supporting clean power projects.

Rive said SolarCity plans to hire veterans to work on the SolarStrong project, which will put solar panels on the rooftop of about 120,000 single and multi-family homes. There also will be ground-mounted systems. The actual amount of solar energy that will be added by the end of the 5-year project will depend on factors such as the costs of solar equipment and labor.

SolarCity will sell the electricity from the solar panels to developers and management companies of military housing. Military housing is privatized, but developers and management companies will still need military’s final approval before signing power purchase agreements. The agreements should lead to lower utility bills for military families.